Pak–Nepal Economic Relations

Although political relations between Pakistan and Nepal have usually been termed as “friendly and cordial,” the bilateral economic and trade relationship has, in fact, never attained the desired level. During the entire period of the relationship between the two countries, bilateral trade and commerce has not lived up to its promise. Over the years, the scale and scope of Pakistan-Nepal economic engagement has been “unimpressive” with trade and investments never gathering any momentum.

Bilateral Trade

A Trade Agreement between Pakistan and Nepal was signed in 1962. Another agreement, concluded in 1982, facilitated the two sides to accord “Most Favoured Nation” (MFN) status to each other. However, bilateral trade remains insignificant due to geographical limitations of Nepal and India’s refusal of transit land route to Nepal.

The following trade figures of the last few years, as well as those of the recent past, indicate the state of economic and trade relations between Pakistan and Nepal:

The major Nepalese commodities that are imported by Pakistan are: woolen shawls, scarves, mufflers, mantillas, veils and the like, artificial parts of body, cream and like preparations, tanned or crust hides and skins of goats kids, coloring matter of vegetable or animal origin, plants and part of plants (including seeds and fruits), paintings etc.

It is not difficult to trace the factors that help explain the reasons behind insignificant economic activity between the two countries. Some of them are enumerated below:

The first is rooted in geography. Nepal is a landlocked country and can be only accessed through her two neighbors i.e. India and China. The India-Nepal bilateral trade, which was 29.8 per cent of the total external trade of Nepal, in the mid-1990s, increased to 66.4 per cent in 2010-2011 and 66.7 percent in 2012-13. In 2011-12 trade between the two countries amounted to Rs. 311.54 billion. Nepal’s imports from India amounted to Rs. 267.88 billion, whereas its exports to India valued Rs. 443.78 million. In the fiscal year 2012-13, India imported Nepalese goods worth Rs. 50.99 billion, whereas Nepal imported Indian goods worth Rs. 367.03 billion. In the fiscal year i.e. 2013-14, Nepal’s trade gap with India stood at Rs. 422.89 billion, as it exported goods worth Rs. 59.46 billion and imported Indian goods of the value of Rs. 482.35 billion. In the case of China, Nepal imported Chinese goods worth Rs. 53.90 billion in 2011-12, against Rs. 46.38 billion in 2010-11. During 2013-14 Nepal’s imports from China stood at Rs. 78.75 billion and its exports to China were worth Rs. 3.32 billion. The above data indicates that Nepal’s landlocked status leaves very little scope or opportunity for others to carve out their share of trade.

Second, given its relatively small population and corresponding domestic consumption, the Nepalese market is quite small. As is evident from the figures stated above, more than 80 per cent of Nepal’s inward and outward trade is directed towards its two neighbors. This has however, not stopped countries like Bangladesh from finding a space for their goods in Nepal. Over the last two years, Nepal’s volume of trade with Bangladesh has stood at US$ 80 million, whereas two-way trade between Pakistan and Nepal has remained static, at around US$ 4 million, over the last many years.

Third, policy makers and bureaucrats in the two countries have failed to create an environment that is conducive to deeper economic partnership. Over the past, bureaucracies, on both sides, have found it difficult to devote sustained attention to matters related to enhancing bilateral economic cooperation. Not only do the two sides hardly meet to deliberate on matters of mutual concern, if any, or discuss means to enhance the economic relationship, there is apparently very little or no desire whatsoever to establish contacts between the two bureaucracies / policy makers.

Lastly, the bilateral institutional frameworks in place are too weak to undertake important responsibility. Although on paper, we have a number of important bilateral agreements that should have encouraged trade and commerce between the two countries, in reality they have failed in their primary task. Leaving aside investments, which have never made a mark in the relationship, the volume of trade, which could have seen an increase, has simply plateaued over the last many years. The most important bilateral framework – the Joint Economic Commission (established in 1983) – through which economic and trade relations were anticipated to be regulated, met for its 5th session in 2005, after a lapse of ten years. After resorting to one pretext or the other to postpone the meeting for eight years, the 6th session of JEC was finally held in Islamabad from 19-20 August 2013. Similarly, the Joint Business Council (JBC), established in 1996, with the aim of promoting trade, investment and transfer of technology, has only met twice (last time in Kathmandu in November 2005). Our Mission’s numerous endeavours over the last two years to generate Nepalese interest in convening next JBC meeting in Pakistan have failed to bear fruit. Same is the case with other bilateral mechanisms which have failed to respond to the new challenges and opportunities and have therefore not achieved the desired results.